Is It Time to Change Your Investment Strategy?

Is It Time to Change Your Investment Strategy?

| Paul Fain

Uncertainty is a fact of life. With uncertainty comes fear. Without a doubt, the global pandemic has escalated uncertainty and fear in our lives.

Learning to cope with uncertainty is essential to a resilient life. But how do we do this? Some thoughts: Have a financial plan. Focus on what we can control. Be adaptable. Be patient. Trust your “experiential capital.”

As investors we control the allocation of our investment assets. For consideration, the classic middle-of-the-road asset allocation is 60% growth (stocks), 40% fixed (cash and bonds). In light of the recent pandemic-driven market crash, should we change/adapt our investment strategy now? Well, let’s take a look in the rear view mirror.

U.S. stocks, measured by the S&P 500 index, are down 8.5% this year, but are up 3.3% for the past year, and 6.7% for the past five years (better than a CD).

U.S. bonds, measured by the Barclays Aggregate Bond index, are up 4.5% year-to-date, 9.7% for the past year, and 3.8% for the past five years (better than a savings account).

A comparative 60/40 asset allocation fund from Vanguard is down 5.8% this year, but up 3.2% for the past year, and 4.7% for the past five years (better than cash in a coffee can).

Now maybe you need to adjust your investment strategy to account for immediate or upcoming cash needs or to replenish a depleted emergency reserve fund. Maybe you feel a need to dial up or down your stock exposure given that this pandemic is not over and we won’t see the economy just snap back to pre-COVID growth. There are always two sides to the coin: crisis and opportunity.

Finally, trust your “experiential capital,” what we commonly think of as wisdom. We’ve weathered multiple crises over the years and we’ve learned a lot with each experience.  Apply that.

These days, when uncertainty and fear start to overwhelm me, I often calm myself by reciting “The Serenity Prayer” written by the American theologian Reinhold Niebuhr: “God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference. Amen.”